Hire Employees in Sri Lanka

Your own entity is normally a private limited company. BOI approval brings incentives and a streamlined route for expatriate staff, which is why most foreign operations here sit under that regime.

An Employer of Record inverts the sequence: the Sri Lankan entity signs the contract, registers the employee for EPF from day one, remits ETF and withholds APIT, while you direct the day-to-day work.

The reason to carry the relationship externally is TEWA rather than administration. Once an employee passes a year of service, dismissal requires either their written consent or the Commissioner of Labour’s prior approval, which changes the risk profile of a first hire considerably.

Sri Lanka's 15% employer cost has no floor and no ceiling. EPF at 12% and ETF at 3% apply at every salary level. That is unusual in South Asia, where most schemes cap out, and it means senior hires never become proportionally cheaper the way they do in India or Pakistan.

ETF is employer-only and must never be deducted from the employee. It is a separate welfare and savings scheme from EPF, and deducting it is an unlawful wage deduction rather than a configuration error.

Sri Lanka runs two different calculation bases and mixing them misstates every payslip. The EPF and ETF base excludes overtime, reimbursed travel and bonuses; the APIT income tax base includes them. They must be computed separately from a single gross figure rather than derived from one another. There are also two remittance deadlines in the same month. APIT by the 15th and EPF and ETF by the last working day.

The reason to use an EOR here is TEWA. Under the Termination of Employment of Workmen Act, an employer with fifteen or more employees dismissing a workman with over a year's service without written consent needs the prior written approval of the Commissioner of Labour. That makes the probation decision unusually consequential, and it makes carrying the employment relationship externally valuable while a team is being proven.

Break-even rule of thumb: EOR fees begin to exceed the running cost of a small Sri Lankan entity somewhere between 15 and 20 employees. Model both before committing, see EOR vs Entity for the full comparison, and plan any later migration so employees keep seniority.

Employer cost is 15% with no floor and no ceiling. EPF at 12% and ETF at 3% apply at every salary level. That is unusual in South Asia, where most schemes cap out, and it means senior hires never become proportionally cheaper.

ETF is employer-only. Deducting it from the employee is an unlawful wage deduction rather than a configuration error, and it is a distinct scheme from EPF rather than a component of it.

Two different calculation bases operate simultaneously. The EPF and ETF base excludes overtime, reimbursed travel and bonuses; the APIT income tax base includes them. Deriving one from the other misstates every payslip, and the two remittances fall on different dates. APIT by the fifteenth, EPF and ETF by the last working day.

What the percentage does not tell you. Employer contributions of 15% are the statutory floor, not the cost of a hire. Add deferred pay that accrues monthly but is paid later, any sector agreement that raises the minimum, and the administrative cost of registering and filing. A quote built on the headline rate alone will be short.

Where the number moves. Ceilings, floors and eligibility conditions change the effective rate at different salary levels, so the percentage that applies to a junior hire is rarely the percentage that applies to a senior one. The calculator below applies each component separately, with its own ceiling where one exists, rather than a single blended rate.

Before you commit. Confirm the current schedule against the sources listed at the foot of this page. Sri Lankan figures were verified on 17 August 2026, but contribution ceilings and minimum wages are revised on their own timetables and not always in January.

Four representative profiles, costed with the 2026 contribution rates above. Salaries are illustrative market midpoints, not GX operating data, use them to see how the on-cost percentage behaves as pay rises, not as a salary benchmark for a specific role. For real market data on your roles, ask for a costing.

Watch the on-cost percentage rather than the absolute figure. 5 of the charges here are capped and 1 are not, so the effective employer rate falls as salary rises, but it flattens rather than disappearing. The senior rows below show where it settles.

Four representative profiles costed on 2026 statutory rates. Salaries are illustrative market midpoints, not GX operating data.

Payroll runs monthly in rupees. APIT is remitted to the Inland Revenue Department through the RAMIS portal and EPF and ETF to their respective bodies.

The tax year runs from 1 April to 31 March, so changes take effect in April rather than January and the annual employer return is due by 30 April. A calendar-year payroll calendar will misalign with every threshold change.

The personal relief rose to LKR 1,800,000 a year from 1 April 2025 under the Inland Revenue Amendment Act No. 2 of 2025, and the former 12% band was eliminated under IRD Notice PN/IT/2025-01, so the scale now steps from 6% directly to 18%. The relief is built into the APIT Table 01 formula and should not be deducted again separately.

Thresholds and ceilings are uprated periodically, so a figure correct in January may not hold later in the year. Where a row below is flagged, published sources disagreed and the conflict is recorded rather than resolved.

Thresholds move on a local cycle that does not always fall in January, so a figure correct at the start of the year may not hold through it. Where a row below carries a flag, published sources disagreed and the conflict is recorded rather than resolved, none apply on this page.

Written contracts are standard and expected. English is widely used in the formal sector and enforceable.

Probation is commonly six months, and it matters more here than in most markets. Once an employee completes the qualifying service under TEWA, dismissal becomes materially harder and requires either consent or Commissioner approval. Probation is the window in which a performance decision is simple.

EPF applies from the first day of employment regardless of probationary status, so the contribution obligation and the protection do not begin at the same point.

Eight hours a day and forty-five a week under the Shop and Office Employees Act. Overtime is paid at one and a half times the hourly rate and is capped at twelve hours a week for most categories.

Overtime is where payroll disputes usually start. Record hours from day one even where the role is salaried and the expectation is that overtime will not arise, reconstructing records after a complaint is far harder than keeping them.

Overtime is where payroll disputes usually begin, and the burden of proving hours worked generally sits with the employer. Record hours from the first day even for salaried roles where overtime is not expected, reconstructing a record after a complaint is considerably harder than keeping one.

Public holidays sit on top of the annual leave entitlement. Where a holiday falls at a weekend, practice varies, some markets move it, some grant a substitute day and some do neither, so check the position before assuming a day in lieu.

The 25 dates below are the statutory position. Employers in many markets grant more by policy or collective agreement, and sector agreements sometimes add local or patronal days that do not appear in a national list.

Sri Lanka observes 25 paid public holidays in 2026. Dates that fall at a weekend and any substitution rules are set out below; entitlement is separate from annual leave.

Maternity: 84 working days for the first two children, 42 for subsequent children. Full pay, employer-funded. Paternity: Not a general statutory entitlement in the private sector. Provided by contract or policy. Sick leave: Included within the casual leave entitlement for many categories. Additional sick leave is commonly provided by contract. Poya days: 12 Full Moon Poya Days a year. Statutory holidays observed nationally.

Weekly rest: 1 and a half days a week. Under the Shop and Office Employees Act.

The question that matters for budgeting is who funds each entitlement. Where the state or a social insurance fund pays, the employer carries administration but not cost; where the employer pays, it is a direct charge that headcount models routinely omit. Both patterns appear above.

TEWA is the central constraint and it has no real equivalent in most markets. For an employer with fifteen or more employees, dismissing a workman who has more than a year of service requires either the employee's written consent or the prior written approval of the Commissioner of Labour. The Commissioner may refuse, or may approve subject to compensation on a published formula.

That is not a notice-and-pay regime. An employer cannot simply price the exit and proceed, the approval is a precondition, and a dismissal without it is unlawful regardless of the amount offered.

Gratuity is separate and additional: half a month's salary for each year of service, payable to employees with more than five years under the Payment of Gratuity Act, for employers with fifteen or more employees.

Because TEWA attaches after a year of service, probation, commonly six months, is the window in which a performance decision is simple. After it, the position changes materially.

A foreign national needs a residence visa with employment endorsement, sponsored by the employer. BOI-approved companies follow a materially more streamlined route, which is a substantive reason to seek that status where the operation qualifies.

Allow two to three months for a standard application. The endorsement is tied to the employer, so a change of employer requires a fresh application rather than a transfer.

Sri Lanka does not operate a dedicated digital nomad visa, so remote workers employed abroad generally rely on tourist visas with extensions, an arrangement that does not create a Sri Lankan employment relationship but also does not support one.

TEWA is the central constraint and it has no real equivalent in most markets. For an employer with fifteen or more employees, dismissing a workman with more than a year of service requires either written consent or the Commissioner of Labour’s prior written approval. The Commissioner may refuse, or approve subject to compensation on a published formula.

This is not a notice-and-pay regime. An employer cannot price the exit and proceed, the approval is a precondition, and a dismissal without it is unlawful whatever sum is offered.

Practical controls: treat the probation decision as the real decision point, configure two separate calculation bases in payroll, keep ETF entirely on the employer side, and diarise both remittance deadlines and the 30 April annual return.

Work backwards from the start date. For a Sri Lankan national through an EOR, one to two weeks is realistic. A foreign national needs a residence visa with employment endorsement, adding two to three months, with a streamlined route for BOI-approved companies.

Confirm before making an offer: which allowances are EPF and ETF eligible, since the base excludes overtime, travel reimbursement and bonuses; whether the employer will reach fifteen employees, which switches on both TEWA and the gratuity obligation; and that the probation term is set deliberately given what follows it.

EPF registration applies from the first day of employment regardless of probationary status, and ETF Board registration is separate. Configure two calculation bases in payroll and diarise both remittance deadlines, the 15th for APIT and the last working day for EPF and ETF.